Lately I have been receiving calls and emails from people expressing concern over their portfolios and the market in general. We live in anxious times. China, trump, interest rates, flat economic growth, climate change and severe mental health statistics. It is that last topic that traders and investors can sometimes (I suggest frequently) have a struggle.
Below is a reply to a male client that I wrote a few weeks ago. I have sent the same reply to quite a few people now, as the questions of concern seem to be the same. My reply starts next paragraph.
I have found over the many years I have been coaching it is common for wives or partners (of traders) to have serious reservations about trading or investing in the stock market.
The stock market can be a challenging yet very interesting and intellectually satisfying pursuit, but of course that requires commitment and encouragement.
I say to all my clients it is important to fully disclose to your partner your investment goals and preferably attain their support.
Something that I have always found interesting is peoples perspective of investing. Many distrust the share market and are particularly wary of volatility. You often hear the statement "buy property it never goes down". Well as we know property took a 20% dive in Sydney and Melbourne recently but this does not seem to bother people. They hold on! Below is a chart of the average Sydney dwelling since 2012, as you can see it has its fair share of oscillation, particularly of late.
Something that I say to all my clients is this. Your house does not go up for auction everyday like a share portfolio does. Also, you can't log on to your smart phone 6 times a day and check to see how the price of your house is going, but you can certainly do that with a portfolio. You are forced through circumstances to detach from the volatility of housing prices. The same scenario exists with industry super funds. All super funds are linked directly to market performance, yet when corrections come, people hang in there.
If only they could have the same detachment, resilience and perspective with their share portfolios.
With housing people have a plan. Hold for the long term.
With super they have a plan to. Hold for the long term and hand over the responsibility to a fund manager.
So, if you are going to become a competent trader/investor, you need a plan of when to buy and when to sell. You also need to be a fund manager and treat it like a business (which it is). Too many people treat trading and investing in the market like the Melbourne Cup. Pick a horse and hope for the best.
Some people are not suited to the stock market. I will be honest and say I have very few school teachers as clients. (My clients wife is a school teacher) My own father was a teacher and he was a property man. I myself had a stint at TAFE teaching. The majority of my clients seem to be from a technical or professional background. However a most fascinating statistic is that women often outperform men in the stock market.
I think it's a shame there is not better education for young people about the stock markets. It is possibly the case in the US, but in Australia we are a property obsessed lot. The other serious problem is people are too short term focused, we do live in a world of instant gratification, a major cause of mental health problems. Have you ever stopped to consider that your short term trading is just a grasping for instant gratification and a misplaced search for happiness?
For example look at this graph of a simple monthly system for the Aussie stock market. For future reference the system is called New Monthly Volume. It has been traded on a group of stocks that meet a set fundamental criteria. It's done 200 trades in 10 years, or 20 trades a year.
Impossible? Well, no. To achieve this result you need to average a return of 30% p.a. If you check my website and portfolio you will see this is the case.
The blue line at the bottom of the chart is how the XAO has performed (the All Ords) or top 500 companies.
I don't know of many properties or super funds that will go from 100k to 2 million in 10 years. Yet young people persist with property. It's not their fault, it is lack of knowledge and training. Even if you could produce half that performance, I still do not see many properties going from 100K to a million in 10 years. That would be the equivalent of buying a house in Sydney today for 1 million and it being worth 10 million in 10 years. Considering I often discuss probability, what do you think the probability of that is?
Of course to achieve the above market results one needs to become their own fund manager, rather than handing over control to someone else.
By the way, the graph above, along the bottom, shows a dark green oscillating up and down, that's the cash component of the portfolio. You can see when the market starts to fall the system cashes you out, as all good methods will do to preserve capital. One of your decisions as a trader/investor (with my help) will be to determine what time frame you trade and how much pull back you can emotionally cope with. Because as with the housing and super investor, it is imperative you stick to your plan.
Trading is a process. You need to develop yourself enough to have the discipline to the follow the process. Also develop your mind enough to detach from all the "what ifs" the market will present to you, year in year out. Use a similar mindset that you do with your house or super. Stop obsessing over every little market move and stop micro managing. As I have repeated many times, trading is a process and based on probability. Follow the process, develop the correct mindset, and you will succeed.
Next speaking engagement
I will be at the Newcastle ATAA on Saturday the 14th of December. Details below.
"I feel for a successful and happy life much of it depends on our mental outlook. The money, power or even health, I think is secondary. If mental state is calm, at peace, then you really enjoy your life." The Dalai Lama.
(Peter Castle is a full time trader and coach. He is a Buddhist Zen priest and ordained in the order of Mugendo Zen Kai)